2011-2012 - Malawi - Interim Country Strategy Paper
35
MALAWI INTERIM COUNTRY STRATEGY PAPER (ICSP) 2011-2012 MARCH, 2011 Language: English Original: English
Transcript of 2011-2012 - Malawi - Interim Country Strategy Paper
MALAWI
INTERIM COUNTRY STRATEGY PAPER (ICSP)
2011-2012
MARCH, 2011
Language: English
Original: English
TABLE OF CONTENTS
ACRONYMS AND ABBREVIATIONS ..................................................................................... ii
I INTRODUCTION ................................................................................................................. 1
II COUNTRY CONTEXT AND PROSPECTS ...................................................................... 1
2.1 Political, Economic and Social Context ............................................................................... 1
2.2 Strategic Options ................................................................................................................ 10
2.3 Developments in Aid Coordination and Bank Group Positioning ..................................... 14
III BANK GROUP STRATEGY IN MALAWI ..................................................................... 17
3.1 Rationale for Bank Group Intervention .............................................................................. 17
3.2 Deliverables and Targets ................................................................................................... 18
3.3 ICSP Monitoring and Evaluation ....................................................................................... 19
3.4 Country Dialogue Issues .................................................................................................... 19
3.5 Potential Risks and Mitigation Measures .......................................................................... 20
IV CONCLUSION AND RECOMMENDATION ................................................................. 20
Task Team
C. Ojukwu, Regional Director, ORSB A. Mwaba, Resident Representative, MWFO S. Martin, Resident Representative, AOFO M. Phiri, Principal Country Economist, ORSB
Peer Reviewers P. Kariuki, Principal Country Economist, UGFO T. Owiyo, Principal Results Specialist, ORQR A. Zerihun, Macroeconomist, ETFO
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TABLES
TABLE 1: GOVERNANCE INDICATORS: SCORE OF -3.0 (WORST) AND 2.5 (BEST) ...... 5
TABLE 2: MALAWI- DOING BUSINESS 2009 & 2010 RANK ................................................ 6
TABLE 3: MALAWI- GLOBAL COMPETITIVENESS RANK 2010-2011 ............................... 7
TABLE 4: REGIONAL CONNECTIVITY ................................................................................. 11
TABLE 5: INDICATIVE LENDING PROGRAM (2011-2012) ................................................. 18
TABLE 6: INDICATIVE NON-LENDING PROGRAM (2011-2012) ....................................... 19
FIGURES
FIGURE 1: POLITICAL CONTEXT ............................................................................................ 2
FIGURE 2: REAL GDP GROWTH (%) ........................................................................................ 3
FIGURE 3: GDP BY SECTOR (2009) .......................................................................................... 3
FIGURE 4: FISCAL BALANCE (% GDP) ................................................................................... 4
FIGURE 5: HUMAN DEVELOPMENT INDEX ......................................................................... 8
FIGURE 6: PRIMARY SCHOOL DROP-OUT AND REPETITION RATES (%) 2008 ........... 10
FIGURE 7: ODA DISBURSEMENTS BY DONOR FY2007/08 -FY2009/10Q1 ...................... 14
FIGURE 8: ODA DISBURSEMENTS BY SECTOR 2007/08FY -2009/10FYQ1 ..................... 15
BOXES
BOX 1: THE SME SECTOR IN MALAWI................................................................................... 7
BOX 2: THE FARM INPUT SUBSIDY PROGRAM (FISP)........................................................ 9
BOX 3: SUMMARY OF KEY CHALLENGES AND WEAKNESSES ..................................... 13
ANNEXES
ANNEX 1: MALAWI ICSP RESULTS FRAMEWORK 2011-2012 ............................................ I
ANNEX 2: MALAWI: SELECTED MACROECONOMIC INDICATORS ............................. IV
ANNEX 3 : MALAWI: COMPARATIVE SOCIO-ECONOMIC INDICATORS ....................... V
ANNEX 4: MALAWI PROGRESS IN MDGs INDICATORS ................................................... VI
ANNEX 5: 2010 CPPR: COUNTRY PORTFOLIO IMPROVEMENT PLAN ....................... VIII
ANNEX 6: COMPARATIVE KEY PERFORMANCE INDICATORS....................................... X
ANNEX 7: MAP OF MALAWI ................................................................................................... XI
CURRENCY EQUIVALENTS
(End-February, 2010)
UA 1.00 = MWK 235.54
UA 1.00 = US$ 1.56
US$ 1.00 = MWK 150.80
FISCAL YEAR
1 July to 30 June
ii
ACRONYMS AND ABBREVIATIONS
ADB African Development Bank
ADF African Development Fund
AEO African Economic Outlook
CABS Common Approach to Budget Support
CEM Country Economic Memorandum
COMESA Common Market for Eastern and Southern Africa
CPIA Country Policy ad Institutional Assessment
CPPR Country Portfolio Performance Review
DAS Development Assistance Strategy
DB Doing Business
DFID Department For International Development
DPP Democratic Progressive Party
ECF Extended Credit Facility
EITI Extractive Industries Transparency Initiative
EPA Economic Partnership Agreement
ESCOM Electricity Supply Corporation of Malawi
ESF Exogenous Shocks Facility
FDI Foreign Direct Investment
FISP Farm Input Subsidy Program
FY Fiscal Year
GCI Global Competitiveness Index
GDP Gross Domestic Product
GPRSG Governance and Poverty Reduction Support Grant
GoM Government of Malawi
HDI Human Development Index
HIPC Highly Indebted Poor Countries Initiative
IFMIS Integrated Financial Management Information System
MCC Millennium Challenge Corporation
MCP Malawi Congress Party
MGDS Malawi Growth and Development Strategy
MIM Malawi Institute of Management
MRA Malawi Revenue Authority
NSO National Statistics Office
PAF Performance Assessment Framework
PBA Performance Based Allocation
PEFA Public Economic and Financial Accountability
PFEM Public Finance and Economic Management
PRGF Poverty Reduction Growth Facility
RBCSP Results Based Country Strategy Paper
RBM Reserve Bank of Malawi
SADC Southern Africa Development Community
SMEs Small and Medium Enterprises
TEVET Technical, Entrepreneurial and Vocational Education and Training
UDF United Democratic From
1
I INTRODUCTION II COUNTRY CONTEXT AND
PROSPECTS
1.1 The Bank’s Interim Country Strategy
Paper (ICSP) for Malawi for the years 2011-
2012 succeeds the 2005-2010 Results Based
Country Strategy Paper (RBCSP).
Preparation of an interim strategy was
agreed following dialogue with the
Government of Malawi (GoM) on the
timeframe for the preparation of the second
Malawi Growth and Development Strategy
(MGDS.II), expected for 2012. This will
allow the Bank to effectively align its next
strategy from 2013 onwards to the country’s
new poverty reduction strategy.
1.2 Despite its challenging socio-
economic environment, Malawi has
achieved encouraging results over the past
five years: maintaining strong economic
growth rates, improving food security and
sustaining moderate consumer prices. The
major challenge for Malawi is to diversify
its landlocked agro-based economy and spur
private sector growth, which until now
remains sluggish. In this strategy, the Bank
positions itself to use the on-going
interventions in irrigation and transport
infrastructure and the proposed lending and
non-lending programs to help Malawi
address these challenges. Informed by
lessons from the 2005-2010 RBCSP, and
findings from recent economic and sector
work1 on Malawi, the strategy complements
efforts by other development partners while
laying the groundwork for the forthcoming
full Bank Strategy.
1 Skills for private sector development (2009)- ESW conducted by
MWFO, CEM (2009), Education and Employment in Malawi
(2010), AfDB working paper.
2.1 Political, Economic and Social
Context
Political Context
2.1.1 The political landscape has changed
since the 2009 elections. President
Mutharika and the Democratic Progressive
Party (DPP) have a majority government,
ending a politically tenuous period from
2005. The Malawi Congress Party (MCP)
and the United Democratic Front (UDF), the
two main opposition parties, now command
less than a third of the seats in parliament.
The high voter turnout and full participation
from the opposition gave credibility to the
president’s second term, which runs up to
2014.
2.1.2 Recently, the political environment
has taken a negative turn. In particular, the
amendment of Section 46 of the Penal Code
in January 2011, which gives power to the
Minister of Information to ban any
publication ‘deemed not in the interest of the
public’, has raised concerns regarding the
government’s commitment to freedom of
expression. Failure by government to hold
local government elections last held in 2000,
has further exacerbated these concerns.2 The
weakening political governance has led to
some bilateral donors withholding aid3,
which could accelerate domestic borrowing
2 The local elections should be held every five years according to
the Malawi constitution. The rescheduled date of April 2011 from
November 2011 is unlikely to be met as the Malawi Electoral
Commission remains suspended on allegation of fraud. 3 The Germany government in February, 2011 announced a
reduction in budget support disbursements.
2
and impact on the government’s economic
program.
FIGURE 1: POLITICAL CONTEXT
Source: AfDB Statistics using data from WEF 2010
2.1.3 The country lags behind most other
countries in Southern Africa on political
stability (Figure1). The retrogressive
political developments threaten to erode the
gains in civil liberty and political rights
where Malawi performs better than most of
its peers on the continent. Freedom House in
2010 rated Malawi as partly free, ranking
the country’s media freedom at 118 out of
196 countries.
Economic Context
2.1.4 Landlocked and endowed with fewer
known mineral deposits than its three larger
neighbors (Tanzania, Zambia and
Mozambique- Annex 7), Malawi’s main
economic activity is agriculture. It employs
about 80% of the labor force, 70% of whom
are smallholder farmers4. Smallholder
agriculture is predominantly subsistence and
rain-fed. Lake Malawi and other water
4 Agriculture in Malawi has two distinct sub-sectors: large-scale
commercial farming knows as estate agriculture, and the small-scale subsistence agriculture on customary land.
bodies that cover 1/5 of the country’s 118
000 km2 land area (Annex 7), remain
heavily underutilized for irrigation. Only
19% of potential agriculture land is
irrigated. With low irrigation and one
rainfall season, agricultural production is
seasonal, which causes widespread
underemployment.
2.1.5 A series of government policies
implemented over the past 15 years have led
to significant gains in smallholder
production. In particular, GoM’s repeal in
1994 of the Special Crops Act of 1972
allowed smallholder farmers to start
cultivating export crops such as burley
tobacco, sugar and cotton. This agricultural
liberalization combined with a scaled up
Fertilizer Input Subsidy Program (FISP)
introduced in 2005 helped increase the share
of smallholder agriculture from -1.5% of
GDP in 2004 to 14% of GDP in 2008. The
sustained increase in agricultural production
presents a window of opportunity to
facilitate economic diversification by
improving access to domestic and regional
markets and supporting small and medium
scale agro processing.
Growth and Growth Drivers
2.1.6 Malawi’s GDP at 2000 constant
prices was estimated at US$2.7 billion in
2009 (Annex 2). Growth has been robust
with the country sustaining real GDP growth
rates of above 7.0% since 2006, reaching
9.8% in 2008 (Figure 2). It has since
moderated to around 7.0% in 2009 and
2010. Benefiting from favorable weather
conditions, the FISP, HIPC debt relief and
an improved macroeconomic policy
environment, the country’s growth rate has
-0,8 -0,6 -0,4 -0,2 0,0 0,2
Political Stability
Political Rights
Civil Liberty
Score -4.0 (Worst) to 2.5 (Best)
Africa Southern Africa Malawi
3
been well beyond the government’s target
set in the MGDS. The global economic
slowdown found Malawi on a strong
footing. This, coupled with a bumper harvest
and the start of uranium exports in 2009,
helped the country weather the crisis.
FIGURE 2: REAL GDP GROWTH (%)
Source: AfDB Statistics Department, 2010
2.1.7 The primary sector accounts for
41% of GDP (Figure 3) and between 2007
and 2009 grew by an average of 12.5%. Dry
spells affected agricultural growth in 2010,
which stood at 1.3%. Tobacco is dominant
in the sector, contributing to over 13% of
GDP and 60% of total export earnings.
Growth in recent years has been driven by
improved agricultural productivity as a
result of the FISP as well as expansion in
area under cultivation for key non-maize
crops. The share of other crops other than
maize, in total smallholder production,
increased from less than 30% in 1994 to
over 50% in 20095. Potatoes and cassava
now account for over 40% of the value of
total smallholder output up from 15% in
1994.
5 This data should be treated with caution as some
observers feel agriculture data is weak in Malawi.
2.1.8 Estimated at 16% of GDP in 2009,
the secondary sector grew at an average of
6.9% between 2007 and 2009. In 2010 the
sector grew by 21.3%. The expansion came
from mining and construction sectors where
growth is estimated to have risen from an
average of 7.9% for both sectors between
2007 and 2009 to 19.9% and 52.3% in 2010
respectively. Electricity gas and water
posted an average growth rate of 4.7%
between 2007 and 2009. In 2010 the utilities
sector grew by 6.7%. Despite the growth,
the utilities sector’s performance remains
poor, resulting in a slowdown in
manufacturing growth from an annual
average of 7.1% between 2007 and 2009 to
6.2% in 2010.
FIGURE 3: GDP BY SECTOR (2009)
Source: AfDB Statistics Department, 2010
2.1.9 Representing 43% of GDP, the
tertiary sector posted an average growth
rate of 8.9% between 2007 and 2009. In
2010 it is estimated to have grown by 11.6%
benefiting from a buoyant wholesale and
retail trade and transport sectors. The largest
contribution to the country’s services sector
has come from information and
communication, with the expansion in
-2
0
2
4
6
8
10
12
2003 2004 2005 2006 2007 2008 2009
Malawi Southern Africa Africa
Agriculture 41%
Industry 16%
Services 43%
4
mobile telephone services and radio
services. Annual growth in this subsector
averaged 22.3% between 2007 and 2009. In
2010 it is estimated to have grown by
19.4%.
2.1.10 The country’s medium term
prospects look positive with projections up
to 2014 showing the annual growth rate
remaining within the 6.5% trend. The strong
agricultural growth is expected to level off
as productivity gains due to expansion of
area under cultivation fall. The services
sector and expected expansion in mining
will therefore be an important anchor to
economic growth. The broad direction of
policy will remain market orientation.
However, structural reforms that will allow
improvements in the availability of energy
and foreign exchange will be key to
maintaining the economy on the current
growth path.
Macroeconomic Management
2.1.11 The monetary and fiscal policy
framework pursued since 2003 has been
generally prudent. However, an improved
fiscal balance in 2006 (Figure 4) gradually
declined to -5.4% of GDP in 2009 as the rate
of resource mobilisation contracted and
failed to keep pace with the rise in
government spending. As a proportion of
GDP, total expenditure and net lending rose
from 31.2% in 2006 to 35.2% in 2009 while
revenue and grants declined from 31.2% to
29.8% (Annex 2) during the period. High
global fuel and fertiliser prices and an
increase in public investment spending
explain the rise in government spending.
Public investments, which were only 5% of
GDP in 2002 rose to 14% in 20096. The
other part is explained by the FISP, whose
cost rose from 2.6% of GDP in 2005/06 to
6.0% in 2008/097.
2.1.12 A preliminary assessment of the
2009/10 budget estimated at MWK256.8
billion shows a positive balance of 0.1% of
GDP following a decline in expenditures by
4.1% of GDP and an increase in revenues by
3.2% of GDP. Government is keen to reduce
domestic borrowing so as to crowd in
private sector and create fiscal space for pro-
poor spending. Net domestic debt improved
from 16.4% of GDP in 2004 to 11.8% in
2007 but increased to 20.3% of GDP in
2009 (Annex 2) due to delays in budget
support disbursements. Domestic credit to
the private sector has started improving,
rising from 7.6% of GDP in 2005 to 13.5%
in 2009. A pegged exchange rate combined
with improved food availability, helped
moderate headline inflation from 15.5% in
2005 to 8.5% in 2009.
FIGURE 4: FISCAL BALANCE (% GDP)
Source: AfDB Statistics Department, AEO 2010
6 Compare to a slow increase from 10.6% to 12.2% during the
period for private investment 7 In 2008/09 government incurred a 2% of GDP extra budgetary
spending on the FISP.
-15
-10
-5
0
5
10
2003 2004 2005 2006 2007 2008 2009
Malawi Southern Africa Africa
5
2.1.13 The current account deficit at 8.1%
of GDP in 2009 has increased from 2.5% in
2005 (Annex 2). Between 2007 and 2009
imports averaged 42% of GDP while exports
averaged only 22%. Foreign reserves at an
average of 1 month of import cover during
the period were low and volatile. The fixed
exchange rate regime8 pursued between
2006 and 2009 made foreign exchange
scarce reflected in foreign exchange market
queuing and premiums. This forced
government to resort to foreign exchange
rationing and current account restrictions.
2.1.14 The country’s risk of debt distress is
moderate. The Net Present Value of Debt to
GDP stands at 26.1%9 in 2009 (Annex 2).
Government’s post-HIPC efforts aim at
maintaining sustainable debt. The
Government has since issued borrowing
guidelines (2007) and prepared a debt policy
(2009). While Malawi’s aid per capita at
US$61.5 in 2009 is higher than the average
for Southern Africa, the country’s
performance on attracting FDIs has been
dismal. As a proportion of GDP, FDIs
averaged 2.3% between 1999 and 2009,
lower than the Sub Sahara average for low
income countries at 3.0% of GDP. The
2010-2012 IMF monitored program under
the Extended Credit Facility (ECF) aims to
help address external sector bottlenecks to
reinforce the country’s competitiveness. The
first review in December 2010 found the
program on track.
8 The official nominal exchange rate had been pegged against the
US dollar at the rate of about 141MWK:1US$ from 2006 to November 2009. Although the Malawi Kwacha was devalued by
8% in October 2010, the IMF estimates that the Real Effective
Exchange Rate remains overvalued by between 10 and 20%. 9 Against the threshold of 40 of GDP for medium policy countries
Governance
2.1.15 Ranked at 22 on the Ibrahim
Governance index in 2008/09 from 23 in
2007/08, Malawi is in the top half among
African countries. Apart from the Rule of
Law, where the country’s performance has
slightly regressed, there is a positive
trajectory on the scores for all three
indicators (Table 1) though from a low base.
TABLE 1: GOVERNANCE INDICATORS:
SCORE OF -3.0 (WORST) AND 2.5 (BEST)
Indicators 2008 2009
Government Effectiveness -0.58 -0.52
Voice and Accountability -0.24 -0.22
Corruption Perception -0.54 -0.47
Rule of Law -0.18 -0.19
Source: AfDB Statistics, data from WEF, 2010
2.1.16 Under the Public Finance and
Economic Management (PFEM) Action
Plan adopted in 2006, GoM started using the
Integrated Financial Management and
Information System (IFMIS). The system
has helped control the build-up of domestic
arrears and facilitated quick preparation of
financial statements. The government
reports notable improvements in payroll
management efficiency with the Human
Resource Information Management System
(HRIMS) adopted in 2006. On corruption
the country launched a national anti-
corruption strategy in 2009 that aims to
establish a National Integrity System (NIS)
that would champion anti-corruption
reforms and promote ethical culture in the
country. On the Transparency International
Corruption Perception Index, the country is
ranked 85 out of 178 countries in 2010 from
6
89 in 2009 showing some general
confidence in the fight against corruption.
2.1.17 The 2008 Public Expenditure and
Financial Accountability (PEFA) assessment
report shows an improvement in national
budget out-turn from C+ to A. On public
audit, GoM has also progressed towards
clearing the backlog of reports from 5 in
2008 to 1 at end-June 2010 and extending
coverage to local assemblies. The public
procurement system is considered largely
acceptable with most donors including the
World Bank using it. A framework for
managing public procurement is provided
for under the Public Procurement Act of
2003 with the Directorate of Public
Procurement providing oversight.
Business Environment & Competitiveness
Business Environment
2.1.18 Malawi is ranked 19 out of 51
African economies in ‘Doing Business (DB)
201110
report, showing that a lot still needs
to be done to improve the business
environment (Table 2). Starting a business
remains a tedious and costly process
requiring 10 procedures at a cost of 108.4%
of income per capita compared to an average
of 8.4 procedures and 92.1% of income per
capita for Southern Africa. Dealing with
licences is particularly difficult as it takes
268 days at a cost of 1,316.7% of per capita
income to get a permit.
10 Note that most African countries are the bottom of the global DB
ranking. Overall Malawi is ranked 133 out of 183 economies.
TABLE 2: MALAWI- DOING BUSINESS 2009 &
2010 RANK
Item 2009
Rank
2010
Rank
Status -
Improveme
nt (▼)
Ease of Doing Business 19 19 ►
Starting a business 23 27 ▲
Dealing with licenses 42 48 ▲
Registering property 17 10 ▼
Getting credit 10 17 ▲
Protecting investors 14 14 ►
Paying taxes 4 4 ►
Trading across borders 46 46 ►
Enforcing contracts 31 23 ▼
Closing a business 26 25 ▼
Source: AfDB Statistics, 2010 data from DB 2011
2.1.19 The costly business environment and
the difficulties encountered in getting credit
help explain why most businesses in Malawi
remain small and informal (Box 1). Reforms
have generally been slow. Legislation for
the establishment of a Public Private
Partnership framework and a one stop trade
centre are yet to be passed. There has been
some progress on the financial sector with
the passing of legislation in 2010 for the
establishment of Credit Reference Bureau
and approval of the financial sector
development strategy.
2.1.20 In an effort to improve tax
mobilisation, the Malawi Revenue Authority
has created a Large Tax Payers Unit and
developed an on-line self-assessment system
to improve efficiency. As a result, Malawi
ranks 4th among 51 African economies on
the ‘paying taxes indicator’ in DB 2011
report. At an average of 16.6% of GDP
between 2005 and 2009, tax revenue
performance is within the Sub Saharan
7
average. However, more reforms are needed
particularly to reduce the country’s
overdependence on trade tax revenues,
which in 2009 accounted for approximately
42% of total tax revenue. Government is
currently reviewing the tax code of 1971
that should facilitate further reforms.
BOX 1: THE SME SECTOR IN MALAWI
Competitiveness
2.1.21 A rank of 125 among 139 economies
puts Malawi in the bottom 10% in the
2010/11 Global Competitiveness Index
(GCI). While some progress has been made
in improving the effectiveness of the
institutions (rank 52/139), the country’s
macroeconomic environment (rank 135/139)
and state of infrastructure (rank 131/139)
exhibit a significant degree of fragility
compared to other countries (Table 3).
Furthermore reforms are needed to improve
higher education and training, technological
readiness and the market size so as to
enhance efficiency and competitiveness.
TABLE 3: MALAWI- GLOBAL
COMPETITIVENESS RANK 2010-2011
Malawi
Rank
(139)
Overall 125
Basic Requirements 129
1st Pillar : Institutions 52
2nd Pillar : Infrastructure 131
3rd Pillar :Macroeconomic Environment 135
4th Pillar : Health & Primary Education 125
Efficiency Enhancers 110
5th Pillar : Higher education and training 120
6th Pillar : Goods Market efficiency 85
7th Pillar : Labor Market efficiency 50
8th Pillar : Financial Market development 50
9th Pillar :Technological readiness 121
10th Pillar :Market size 127
Innovation Enhancers 31
11th Pillar : Business sophistication 89
12th Pillar : Innovation 29 Source: WEF, 2011
Regional Integration and Trade
2.1.22 Malawi’s geographical location and
the structural features of the economy
require greater regional economic
integration to enhance trade and
development. In ‘Doing Business 2011’ the
country is ranked 46 among 51 African
economies on the trading across boarders
indicator, showing significant benefits are
yet to accrue from the country’s dual
membership to the two regional groupings:
the Southern African Development
Community (SADC) and the Common
Market for Eastern and Southern Africa
(COMESA). The country is yet to sign up to
the Economic Partnership Agreements
(EPA) with the EU arguing it does not
adequately address its interests. The country
however continues to participate in the EPA
negotiations while benefiting from
preferential trade access to the EU market
through the Everything But Arms Initiative.
Malawi’s private sector is characterized by a
‘missing middle’ with very few Small and
Medium Enterprises (SMEs) between the
numerous micro and few large enterprises. The
SME sector is dominated by commerce and
trade enterprises (44%), manufacturing (30%),
crop production (17%), and services (9) with the
majority of enterprises being agriculture-related.
An SME policy and strategy is under
preparation. Nonetheless the government’s
cooperative development policy has helped
establish effective SMEs associations helping
develop successful value chains, particularly in
the agriculture and natural resources sector. At
the lower end there are village groups
manufacturing fruit juice and honey and at the
higher end there is value addition in smallholder
coffee, sugar, tea and timber for domestic and
export markets.
8
2.1.23 Government is committed to making
Malawi land linked through the Nacala Road
Corridor development program to its main
trade port of Nacala in Mozambique. The
corridor is expected to increase and facilitate
trade with Zambia and Mozambique. The
country also sees the development of the
Shire-Zambezi water way linking Malawi to
the port of Beira in Mozambique as an
opportunity to facilitate trade as this route is
half the 600km distance to the port of
Nacala from the Malawi border. Work on
the construction of an in-land port in Nsanje
in Malawi has already started although
progress will depend on buy-in from
Mozambique. A study is underway funded
by the Bank and NEPAD to determine
feasibility of the route.
Social Context
Poverty
2.1.24 With GNI per capita of US$290 in
2008 (Annex 3) poverty remains widespread
in Malawi. The incidence of poverty is high
among rural households with 43% classified
as poor compared to 14% for urban
households. The Southern Region where
literacy rates are low (66%)11
and
landlessness is high has more poor people
(52%). Poverty is also common among
female and child headed households. Since
most farming households rely on rain fed
production, any fall in agricultural output
due to adverse weather easily pushes
farmers into poverty. If Malawi is to achieve
the MDG goal on halving poverty, the
poverty headcount in 2015 could reach 27%.
Based on current trends, the government’s
11
Compared to national average of (70%)
farm input subsidy for poor farmers could
help achieve the target in the absence of
exogenous shocks.
2.1.25 The country is on track to meeting
the MDG on child mortality and has
managed to reverse the trend on HIV/AIDS.
However, Malawi is off track on three
MDGs namely universal primary education,
maternal health and gender equality and
women empowerment. Net primary school
enrollment rate in 2008 stood at 91%.
Maternal mortality remains high at 807 per
100 000 in 2008 from 984 in 2005(Annex
4). An HDI value of 0.385 in 2010 (Figure
5) gives Malawi a rank of 153 among 169
countries. This represents a 49%
improvement in human development since
1980. The Gini coefficient of 39 in 2010
from 50 in 1997 shows improvement in
income distribution.
FIGURE 5: HUMAN DEVELOPMENT INDEX
Source: AfDB Statistics, UNDP data 2010
0,0
0,1
0,1
0,2
0,2
0,3
0,3
0,4
0,4
0,5
0,5
2005 2006 2007 2008 2009 2010
Malawi Average Africa
9
Social Inclusion
2.1.26 Malawi does not have a universal
social safety net. Nonetheless the country
uses the FISP (Box 2) as a safety net
instrument to protect the poor and
vulnerable groups12
.
BOX 2: THE FARM INPUT SUBSIDY
PROGRAM (FISP)
12 Government also has free primary education and health care services, which suffer from quality challenges.
2.1.27 The country further uses the
minimum wage policy to protect those in
vulnerable employment. However the
minimum wage is very low. The monthly
minimum wage at US$24 for urban and
US$19 for rural in 2009 are lower than for
Mozambique at US$89 and US$55 for
manufacturing and farming respectively13
.
For Malawi this translates to daily rates of
US$0.92 for urban and US$0.75 for rural
which are less than a dollar per day,
showing the majority of unskilled
employees are living in poverty in Malawi.
Gender Equality
2.1.28 Prevention of gender-based violence
and protection of women’s rights is
enshrined under law passed in 2007.
However, progress on gender equality has
been slow. While the Gender Development
Index at 0.490 in 2007 is slightly higher than
the average for Africa (0.433) (Annex 3), it
remains poor. Women constitute only 15%
of the formal wage non agriculture sector
employees and 21% of the Members of
Parliament14
. Key gender disparities in the
labor market disappear with the attainment
of higher education;15
however, the survival
rate for girls in primary education is low.
The dropout rate for girls rises sharply from
about 10% in standard 5 to 20% in standard
8 (Figure 6). Poverty, illiteracy of the head
of households, lack of appropriate school
facilities for adolescent girls and cultural
factors explain the high drop-out rate.
13 Duverall and Mussa (2010). 14 Against the SADC average of 30%. 15 Castel et al (2009) Education and Employment in Malawi - ADB, working paper #110.
1. Malawi has won international
recognition for its implementation of the FSIP
introduced in 2005. The program aims to address
liquidity constraints of poor small-scale farmers
to enhance their productivity for improved
household food security and incomes. Farming
households receive vouchers for 100kg of
fertilizer, 2 kg of hybrid maize seed or 4 kg of
open pollinated maize seed. Others receive
legume seed. The number of households
receiving fertilizer coupons has averaged
1.7million since the program’s introduction. The
use of input subsidies in Malawi started during
droughts of the 1980s and 1990s. Between
1998/99 and 2004/05, the government subsidized
input distribution under the Starter Pack
programme. The main difference is that the size
of the fertilizer allocation has now increased and
the private sector is used in redeeming coupons.
2. While rainfall has been generally
favorable, the record levels of maize production
over recent years can be attributed to the
widespread use of improved maize seed and
fertilizer made possible by the FISP. The success
of the program has led to its institutionalizing as
a regular investment to achieve national food
self-sufficiency. Government estimates that
smallholder maize output has increased from
1.3million tones in 2004/05 to 3.66million tones
in 2009/10 while smallholder household food
security has increased from 66% in 2004/05 to
99% in 2009/10. Lea and Hanmer (2009),
however, estimate that the maize yields may be
over estimated by up to 20%. While questions
remain about maize yield data, other indicators
still show improved productivity. According to
the 2007 MVAC data, only 500,000 households
experienced shortfalls in maize access in 2008/09
compared to 4.5 million households in 2005/06.
10
FIGURE 6: PRIMARY SCHOOL DROP-OUT
AND REPETITION RATES (%) 2008
Source: GoM, 2009
Environment and Climate Change
2.1.29 Malawi’s commitment to protecting
the environment and mitigating climate
change is articulated in the MGDS and the
National Environmental Action Plan (2003).
However deforestation linked to
unsustainable use of biomass fuel and
traditional agricultural land use practices is
eroding the country’s progress. Biomass
fuel use is widespread as only 7% of
households have access to grid-supplied
electricity. In rural areas where 85% of the
population lives, access to electricity is less
than 1%.
2.1.30 There is currently no research that
has quantified the potential impact of
climate change on Malawi. Nevertheless
adverse changes in weather patterns
associated with climate change such as
droughts and floods have increased in
frequency and magnitude. These changes
ultimately have an impact on 80% of
Malawian households that rely on
agriculture, 95% of Malawi’s energy
generated from hydropower and over
360,000 households that rely on fishing.
GoM in 2006 adopted the National
Adaptation Programs of Action (NAPA)
aimed at identifying and addressing
immediate adaptation needs caused by
climate change and extreme weather.
2.2 Strategic Options
2.2.1 Country Strategic Framework
2.2.1.1 Malawi’s vision is to achieve middle
income status by 2020. Through the MGDS
the country articulates a medium term
strategic framework (2006-2011) for
achieving that goal. Its underlying objective
is to “transform Malawi from a
predominantly importing country to a
manufacturing and exporting economy” so
as to create wealth and reduce poverty.
Recognizing the challenges facing the
country, the MGDS sets out to achieve this
goal within the broad framework of five
thematic areas (i) Sustainable Economic
Growth (ii) Social Development (iii)
Infrastructure Development (iv) Social
Protection and (v) Good Governance. The
country is currently preparing a successor to
the MGDS scheduled for approval in 2012.
The MGDS.II is unlikely to depart from
Malawi’s focus on an export oriented
growth model. However there could be
realignment of the pillars as government
seeks to sharpen its strategic focus.
2.2.2 Key Challenges and Weaknesses
2.2.2.1 Narrow export base: Malawi’s
diversification index of 2.7 in 2008 is very
low compared to an index of 69.34 for the
highest in Africa. Reliance on rain-fed
tobacco production and its dominance in the
country’s primary exports makes the
0
5
10
15
20
25
30
Std 1 Std 2 Std 3 Std 4 Std 5 Std 6 Std 7 Std 8
repetition rates boys repetition rates girls
drop-out rates boys drop-out rates girls
11
economy vulnerable to weather and terms of
trade shocks. The need to diversify has
become even more urgent in light of recent
Canadian legislation and WHO guidelines
for the Framework Convention on Tobacco
Control approved in November 2010, which
bans tobacco additives. These will affect
burley tobacco that needs additives to make
it less bitter. Malawi is the largest world
producer of burley tobacco.
2.2.2.2 Poor infrastructure: Underdeveloped
and poorly maintained infrastructure hinders
access to internal and external markets and
increases the cost of business operations in
Malawi. In foreign trade, transport costs are
particularly high. They account for an
average of 56% of the total cost of imports
and 30% of the total cost of exports. Among
the four ports used by Malawi (Table 4),
Nacala is the cheapest, but is also the most
unreliable due to poor road and rail
infrastructure and port inefficiency. The Port
of Durban on the other hand is highly
reliable. However, the long distance by road
makes the use of this route for the country’s
mostly bulky exports less cost effective.
TABLE 4: REGIONAL CONNECTIVITY
Reliability
Cost
Low Medium High
Low Nacala
Port
Medium Beira Port
High Dar-es-
Salam Port
Durban
Port
Source: World Bank 2009, CEM
2.2.2.3 The capacity of the aged Nkula and
Tedzani hydro power generation plants is
failing to keep pace with increasing demand.
As a result power outages have become
frequent. The Electricity Supply Corporation
of Malawi (ESCOM), GoM’s sole electricity
company, has a total installed capacity of
302MW (95% hydro). Only 265MW is
available against a demand of 295MW.
Demand is growing rapidly and is projected
to reach 478MW by 2015. A World Bank
Enterprise Surveys conducted in 2009
showed that lost sales due to power outages
in Malawi were 17%, the third highest
among 118 countries included. Energy
constraints are already affecting investments
and economic growth. The Kayerekera
uranium mine is operating using diesel
power generators as ESCOM could not
guarantee power supply.
2.2.2.4 ICT infrastructure is equally poor. In
the 2010-2011 Global Competitiveness
Index, Malawi ranks 136 on mobile internet
subscription, 131 on internet bandwidth, 126
on internet access in schools and 123 on
fixed telephone lines among 139 economies.
2.2.2.5 Poor business environment: The
country’s rigid regulatory framework and
the high costs of doing business are barriers
to private investment. These barriers force
many domestic businesses to remain small
and informal creating a missing middle in
between few large scale and numerous
micro enterprises. Weak value chain
integration, poor business infrastructure and
weak delivery capacity further constrain
growth of the SME sector in the country.
The difficulties in doing business are also
affecting domestic manufacturing. Imports
have doubled over the last five years in
nominal dollar terms. This should have
12
triggered a strong response from import
substitution industries since high costs of
importing into landlocked Malawi provide a
natural protection. The slow growth in
domestic manufacturing suggests the poor
business environment may be a contributing
factor.
2.2.2.6 Weak Financial Sector: The
financial sector is small, lacks depth and is
not inclusive. 55% of Malawians have no
access to financial services. While the
financial sector indicators show a well-
capitalized and profitable banking system
with low non-performing loans, the spreads
remain high. The average commercial bank
lending rate is between 17.75% and 23.75%.
Savings deposit rate are between 0.75% and
2.75%. The stock exchange remains small
with a single licensed broker and 15 listed
companies.
2.2.2.7 Lack of Skilled Labor: High returns
to higher education show the country is
facing skilled labor shortage16
. Within
regular wage employment, secondary and
university education are associated with a
123% and 234% wage premiums
respectively relative to illiteracy. On tertiary
education enrollment rate, the country is
ranked last (139th
) in the 2010/11 Global
Competiveness Index. At 51 and 35/100 000
inhabitants the enrollment for higher
education and TEVET respectively are
much lower than regional averages of 337
and 551 respectively17
. The country has only
four publicly-owned TEVET colleges and
two public universities. Six private
universities have been established since
16
Castel et al (2009) Education and Employment in Malawi ADB Working
Paper #110- Phiri and Munthali (2009) Skills for Private Sector
Development in Malawi ADB ESW. 17 Malawi Country Status Report 2009: 337 is average for SADC and 551 is
average for South Africa, Mauritius, Botswana, Zambia, Madagascar,
Mozambique Lesotho and Malawi.
1998. Enrolment stood at 9,082 in 2008, of
which only 3,118 were females. According
to the private sector in Malawi, the quality
of university graduates is good but the
problem lies with the system’s ability to
meet the demand for specific skills such as
engineers, scientists and technicians. On the
other hand both the supply and quality of
TEVET graduates are perceived as a
problem18
. If Malawi is to move up the
value chain it will need a labor force with
relevant skills particularly in agribusiness,
science and technology and ICT to take up
business opportunities in agro processing
and provide technical expertise to the
domestic industries. The authorities have
since 2009 announced a five year plan to
construct five universities across the
country.
2.2.2.8 Low agricultural technology
adoption: Beyond the government’s FSIP
outreach, use of improved seed varieties,
fertilizers, irrigation and improved farm
implements is limited among smallholder
farmers. The majority of smallholder
farmers still use handheld hoes with only
about 5% using irrigation19
. The low
technology uptake compounds the land
scarcity problem. At 132.4 persons/km2
in
2010 (Annex 3), the high population density
is already creating pressure on agricultural
land. 58% of smallholders own less than a
hectare of land while 11% are near landless.
Further improvement to agricultural
productivity, therefore, lies in accelerating
technology adoption among smallholder
farmers.
18
Skills for private sector development (2009)- ESW conducted
by MWFO. 19 World Bank (2009) estimate that 95% of farming households do not use
irrigation.
13
2.2.2.9 Vulnerabilities in the
macroeconomic environment: Although
growth has been robust in recent years, there
are still questions about the sustainability of
Malawi’s growth model. The country has
struggled to sustain a positive fiscal balance
while the current account balance has been
widening. Foreign reserves remain low and
volatile. Although the inflation rate has
moderated, it still remains high. At 14.7% of
GDP in 2009, Gross National Savings
remain weak, while lending interest rate
spreads remain high.
BOX 3: SUMMARY OF KEY CHALLENGES
AND WEAKNESSES
Strengths and Opportunities
2.2.2.10 Expansion of regional trade:
Trade within the SADC region currently
accounts for about 60% of Malawi’s imports
and 31% of the country’s exports. 66% of
the country’s total exports to the sub-region
are non-traditional commodities20
. The sub-
regional market, therefore, presents Malawi
with an opportunity for increased trade and
export diversification. SADC and
COMESA, along with the East African
Community (EAC) of Kenya, Uganda and
20
Non-traditional exports include cereals, apparel, oil seed, cotton,
rubber, printed books, heavy machinery, and wood.
Tanzania, have agreed to harmonize their
tariffs and other trade regulations under the
Tripartite Agreement, thus further enhancing
the export diversification opportunities for
Malawi.
2.2.2.11 Improved agricultural output and
crop diversification: Agricultural yields
have increased. Although maize continues to
dominate food production and
consumption21
, production increases have
expanded to other crops including root
crops, sugarcane, cotton and coffee. Milk
production between 1994 and 2007 rose
from about 8,000 to about 18,000
liters/day22
. This presents an opportunity for
agro-processing targeting bio-fuel, textile
and dairy industries. The country’s two
ethanol companies supplying the domestic
and East African market face shortage of
molasses yet demand has been rising.
2.2.2.12 Abundant Water: Lake Malawi and
other water bodies cover 20.6% of the
country. The proposed Green Belt Initiative
to be developed along the lake and the Shire
Valley could exploit this potential to the full
with adequate feasibility studies. The Lake,
which is the third largest in Africa, also
provides an opportunity for the development
of water transport that still remains low.
Transport development on Lake Malawi will
also help strengthen integration to
Mozambique and Tanzania. Tourism
currently contributes less than 1% to
Malawi’s GDP. Improving transport to
amenities along the lake and the quality of
hospitality services should improve tourism.
21
Maize occupies 50% of smallholder cropped area and accounts
for 90% of cereal calories in Malawi. 22 About 60% of dairy products are still imported, showing there is room for further expansion.
Narrow export base
Poor infrastructure
Poor business environment
Lack of skilled labor
Weak financial sector,
Low agricultural technology
adoption
Vulnerabilities in the
macroeconomic environment
14
2.2.2.13 Expanding mining sector: The
Kayerekera Uranium mine with an estimated
3.9 Mt of contained uranium oxide and a life
span of 10 years is expected to contribute up
to 10% of GDP and 25% of exports at its
peak. Government owns a 15% stake in
Paladin uranium mining company. The civil
society has led dialogue on the dangers of
uranium mining and facilitated Paladin’s
investment in primary and secondary
education and potable water for the
surrounding communities. Globe Metals of
Australia have found commercially viable
quantities of niobium and tantalum in
Central Malawi where work is scheduled to
start in 2013. Coal production should
increase with government plans to establish
a 300MW coal-fired electricity generation
plant. It is estimated that Malawi has 20
billion tons of coal deposits. Mining will,
therefore, be an important source of revenue,
growth and employment for the country.
2.3 Developments in Aid Coordination
and Bank Group Positioning
Aid Coordination
2.3.1 The Public Finance Management Act
of 2003 gives the mandate for coordinating
both bilateral and multilateral aid to the
Ministry of Finance. The Ministry of
Development Planning and Cooperation
(MDPC) coordinates aid activities as they
relate to the MGDS, the Public Sector
Investment Program (PSIP). Government
data shows that actual ODA disbursements
to Malawi received between 2007/08 FY up
to first quarter of 2009/10 FY amounted to
US$1.3 billion. Based on volume of
disbursements during this period (Figure 7),
the EU was the largest donor with US$217.7
million followed by USAID (US$164.9
million) and DFID (US$161.8 million). The
Bank Group was the eighth with US$103.3
million. The government uses the
Development Assistance Strategy (DAS) as
an instrument for aid coordination in line
with the 2005 Paris Declaration agenda. In
this context, GoM has expressed preference
for budget support aid modality for its quick
disbursing, flexibility in resource allocation
and use of country systems.
FIGURE 7: ODA DISBURSEMENTS BY
DONOR FY2007/08 -FY2009/10Q1
Source: GoM Annual aid reports for 2007/08, 2008/09 and 2009/10Q1
2.3.2 The number of budget support
donors has since increased from three in
2005/2006 FY to six in 2009/10 FY. The six
organized under the Common Approach to
Budget Support (CABS) Group include the
Bank Group DFID, EU, Germany, Norway
and the World Bank. Direct budget support
is estimated at 7% of the 2010/11 FY
budget. The EU, with US$32 million, is the
largest donor. The Performance Assessment
Framework (PAF) carrying an agreed set of
indicators that are reviewed annually
provides the main basis for monitoring
government performance.
-
50,0
100,0
150,0
200,0
250,0US$ mn
15
FIGURE 8: ODA DISBURSEMENTS BY
SECTOR 2007/08FY -2009/10FYQ1
Source: GoM Annual aid reports for 2007/08, 2008/09 and
2009/10Q1
2.3.3 Between 2007/08 and the first
quarter of 2009/10 FY, the health sector
received the largest ODA with 29% of
disbursements, followed by economic
governance (21%), education (10%) and
agriculture (9%) (Figure 8). Trade and
private sector development, energy,
environment, transport and gender received
disbursements of less than 5% of the total.
2.3.4 Social sector: Based on
disbursements during the period, the Global
Fund with support to HIV/AIDS is the
largest source of funding for the health
sector followed by USAID who is
supporting provision of Essential Health
Package. DFID is a lead partner in the
education sector. Between 2010 and 2013 it
plans to construct 3,000 primary education
classrooms through basket funding.
2.3.5 Infrastructure: The EU is a lead
partner in transport and agriculture. In
transport, the EU under the 10th
EDF is
financing domestic road infrastructure
maintenance and supporting the
development of multimodal transport
framework. In agriculture the EU is
supporting Farm Income Diversification. In
the energy sector the US Government under
the Millennium Challenge Corporation will
provide US$350.6 million from 2011 for
rehabilitation works. The GoM has in the
meantime requested the Bank to consider
supporting some hydro power feasibility
studies. The World Bank is a lead partner in
water and sanitation where it focuses on
urban water supply.
2.3.6 Private sector: The World Bank
leads on private sector development. It is
supporting improvements to the business
regulatory framework by financing a review
of 40 priority economic laws. The
Government has expressed the need for
further support that should focus on the
development of the missing middle (SME
sector).
2.3.7 In this strategy the Bank will be
more selective focusing on sectors where the
country faces challenges but have low
attention from other development partners.
To leverage ADF XII resources, the Bank
will seek co-financing with EU on the
transport sector and World Bank and UNDP
on the private sector. The Bank should
continue supporting the budget as it creates
the needed space for country dialogue and
provides the framework for monitoring
policy reforms in the business environment
and public finance management.
2.3.8 With respect to a Joint Assistance
Strategy (JAS) in Malawi as anticipated at
mid-term of the 2005-2010 RBCSP there
has been lack of progress. This is because
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16
the current Development Assistance
Strategy of the government does not
envisage one. An opportunity to engage
government on the JAS will arise during the
review of the DAS in 2012.
2.3.9 China and India are key emerging
partners. China is currently providing
US$190 million in grants and concessional
loans for infrastructure development with
India providing US$180 million in lines of
credit mostly for irrigation. FDI from China
has risen from US$ 0.96 million in 2006 to
US$11.25 million by 2009 with over 55%
invested in manufacturing. In 2009, the total
bilateral trade volume between the two
countries reached US$82 million from
US$44 million in 2007.
Bank Group Positioning
2.3.10 Malawi’s portfolio consists of 11 on-
going operations with a total commitment of
UA176 million. The social sector with 33%
has the largest share followed by transport
(22%), agriculture (21%) and water and
sanitation (17%). Budget support has a 7%
share. The Nacala Road Development
Corridor (Phase I-III) under the transport
sector is a multinational operation involving
Malawi, Zambia and Mozambique.
Portfolio Performance
2.3.11 The 2010 Country Portfolio
Performance Review (CPPR) showed that
performance had marginally improved.
Overall rating increased to 2.3 in 2010 from
2.0 in 2006. GoM’s compliance with
conditions preceding effectiveness recorded
the most improvement in rating from 1.8 in
2006 to 2.7 in 2010. The country’s
disbursement ratio of 18.6% in 2010
compared to 28% average for the Bank in
2009 reflects a young portfolio (3.4 years
Annex 5). The proportion of projects at risk
(9%) in 2010 was lower than the Bank
average (37%) in 2009 as aged projects
exited the Malawi portfolio. Some key
challenges included poor quality at entry,
lack of results monitoring and poor contract
management.
2.3.12 To improve performance, new
operations shall be preceded by detailed
feasibility studies and economic and sector
work to improve quality at entry. Baselines
and targets shall be clearly defined in the
results framework, which should be used as
a point of reference during supervision and
monitoring. The Bank is engaging the
government to consider blacklisting non-
performing contractors to help improve
contract management.
Lessons Learnt from the 2005-2010
RBCSP
2.3.13 The completion report for the CSP
prepared in 2010 showed that the focus and
instruments used were largely appropriate.
On infrastructure, access to safe drinking
water in Bank supported districts increased
from an average of 37.5% to 88.5%. Support
to smallholder maize and sugarcane
irrigation increased productivity from
1ton/ha to 3.5tons/ha and 80tons/ha to
130tons/ha respectively. On human capacity
development, 55 community day secondary
schools were rehabilitated and 1,552 science
teachers were trained helping increase pass
rates from 38 percent to 44%. Thirteen Basic
Emergency Obstetric Care facilities were
constructed to help improve maternal
17
mortality. On private sector development the
Bank’s support focused on rural based micro
and small enterprises. The Bank used the
budget support instrument to support
Malawi’s poverty reduction strategy and
enhance policy dialogue.
2.3.14 Benefiting from country presence
since 2007, the Bank’s visibility and quality
of dialogue has improved. The country
office facilitated the Bank’s support to the
2008 housing and population census and the
co-financing with AusAid on the National
Water Development Program. On operations
average procurement processing time
declined from 9 months to 5 months while
disbursement objections by the Bank has
fallen to zero. However, the CSP’s results
framework exhibited some weaknesses. A
number of indicators did not have baselines
and targets. In addition, lack of feasibility
studies and economic and sector work to
inform new operations affected quality at
entry. This has been improved in the current
ICSP.
III BANK GROUP STRATEGY IN
MALAWI
3.1 Rationale for Bank Group
Intervention
3.1.1 The ICSP for Malawi is framed
within the strategic direction of the MGDS
(2006-2011) and the Bank’s Medium Term
Strategy (2008-2012). In line with the
GoM’s export oriented development
objective, the Bank seeks to help Malawi
address the identified development
challenges and make progress towards the
Millennium Development Goals (MDGs) by
focusing on the following two mutually
reinforcing pillars:
3.1.2 Pillar I: Improving Infrastructure
The main objective of this pillar will be to
help remove infrastructural bottlenecks that
hinder Malawi’s competitiveness. The
proposed operational focus complements the
Bank’s on-going smallholder irrigation
projects for maize, sugarcane and
horticulture approved in 2007 and 2009. The
projects are supporting improvements in
agricultural yields and export crop
diversification. During the ICSP the focus
will be to help the country open access to
regional markets by reducing transport costs
and improving its competitiveness in trade.
3.1.3 The Bank under pillar I will support
the third phase of the Nacala Road
Development Program. The first phase was
between Malawi and Mozambique, the
second phase was between Mozambique and
Zambia and the third phase will be between
Malawi and Zambia. The program aims at
improving Malawi’s access to the ports in
Mozambique so as to reduce the cost of
transportation, strengthen economic linkages
to markets in Mozambique and Zambia and
facilitate trade among the three countries
through establishment of one stop border
posts.
3.1.4 Pillar II: Accelerating Private
Sector Development23
. The main objective
of this pillar will be to help create an
enabling environment for business growth
and innovation. Under this pillar the Bank
will build on recent gains in agricultural
23
This is in line with the MGDS theme of Sustainable Economic
Growth and the Bank’s focus on Private Sector Development.
18
production and crop diversification to
support the SME sector. The focus will be
on building the ‘missing middle’ in the
private sector by supporting value chain
integration, improving business
infrastructure, and improving access to
finance. In this context, university and
TEVET education systems will need support
to build their capacity to provide the labour
market with value addition skills,
entrepreneurship capacity and productive
efficiency.
3.1.5 In line with recommendations of the
economic and sector work that the Bank
conducted in 2009, the Government
requested the Bank to support private sector
development by focusing on three key areas:
(i) Capacity building in value addition and
product differentiation for SMEs to be
financed from the public sector window (ii)
Through the private sector window
providing a line of credit to a commercial
bank that will target SME financing,
particularly those involved in agro-
processing and (iii) Support the
development of infrastructure for higher
education and TEVET to help provide
skilled labour in the country in general and
facilitate productive efficiency, innovation
entrepreneurship in the private sector.
3.1.6 The Bank will use the budget support
operation (the Governance and Poverty
Reduction Support Grant III- GPRSG.III) as
a policy instrument to support pillar II
objectives and monitor progress in PFM and
macroeconomic environment. The
GPRSG.III design shall include small scale
business environment indicators. The
GPRSG.III will also include a PFM capacity
building element as agreed with
government.
3.2 Deliverables and Targets
3.2.1 The ICSP will be financed with
resources from the first two years of the
ADF XII cycle. Efforts will continue to
source co-financing opportunities to
leverage ADF resources. Trust Funds will be
used to finance analytical work in
cooperation with other development
partners.
The Bank’s Indicative Lending Program
3.2.2 The lending program in Table 5
shows the Bank’s operational focus during
the ICSP.
TABLE 5: INDICATIVE LENDING PROGRAM
(2011-2012)
Pillar/Operation Amount
(UAmn)
Sector Window
Pillar I: Improving Infrastructure
2012
Nacala Road
Development
Phase III
33
Transport
Regional
and
Public
Sector
Pillar II: Accelerating Private Sector Development
2011
Support to SME
development
(i) Capacity
Building
(ii) Line of Credit
10
TBD
Private
Public &
Private
Sector
2011
Governance and
Poverty
Reduction
Support Grant
(GPRSG.III)
30
Multi
Public
Sector
2012
Support to
Higher Education
26
Social
Public
Sector
19
Bank’s Indicative Non Lending Program
3.2.3 The ICSP’s indicative non lending
program (Table 6) will aim to inform the on-
going country dialogue and lay groundwork
for the preparation of the Bank Group
country strategy from 2013.
TABLE 6: INDICATIVE NON-LENDING
PROGRAM (2011-2012)
Operation Amount
(UAmn)
Source Sector
2011
Feasibility
Study for Shire-
Zambezi Water
Way
3.6
African
Water
Facility
Transport
2011
Regional
Comparative
Fertilizer
Subsidy Study
1.2
Trust
Funds
Agriculture
2012
Shire Irrigation
Feasibility
Study
0.5
African
Water
Facility
Agriculture
2012
Hydropower
feasibility study
3.0
ADF
XII
Energy
3.2.4 The ICSP has been informed by
lessons from the RBCSP Completion
Report, the 2010 CPPR and economic and
sector work on Malawi that recommended a
deepened focus on transport infrastructure
and private sector development. Consensus
on the thrust of the ICSP, the two pillars and
operational focus was reached after wide
consultation with GoM officials,
development partners, the private sector and
civil society. As an interim strategy it builds
on on-going Bank operations while laying
the groundwork for a full strategy.
3.3 ICSP Monitoring and Evaluation
3.3.1 The ICSP results framework has
been based on government’s results
frameworks (the MGDS and the PAF).
Monitoring of the results will therefore use
existing country systems as provided under
the sector working groups. The National
Statistical System Strategic Plan 2008-2012,
however, highlights capacity challenges to
collect and store data and a lack of
mechanism to coordinate and harmonize
statistical management in the country. The
Bank will use the on-going statistical
capacity building support to Malawi to
strengthen government’s capacity24
.
3.3.2 In 2012, the Bank will undertake a
completion report of the ICSP to learn
lessons which will inform the full CSP.
3.4 Country Dialogue Issues
3.4.1 Sustainability of the FISP: The
program has helped Malawi increase
smallholder agricultural productivity, food
security and household incomes. The
benefits from the FISP are clear when the
costs of the subsidies are compared with the
price of imported maize. Due to the high
costs of transport from South Africa, import
24
The Bank has provided direct statistical capacity building
support to Malawi since 2005. The initial support of $170,000 began under the framework of the ICP-Africa and was earmarked
for institutional capacity assistance in national accounts and price
statistics. Under the Multinational Statistical Capacity Building (SCB) Program 2009-2010, the Bank Group has allocated $471,
410 to support economic and social statistics. This amount is
expected to be increased in Phase III of the SCB (2011-2013) as the activities will also increase.
20
parity prices are commonly US$100 to
US$150 above domestic retail prices.
However, at an average of 60% of the
agriculture budget, the program is a fiscal
strain and crowds out other important areas
like research, extension and livestock
development. The number of beneficiaries
has also remained roughly constant at 1.6
million households. GoM’s Medium Term
Action Plan does not address the key
problems of better targeting, beneficiary
graduation mechanism, scaling up private
sector participation and exit options. The
proposed fertilizer subsidy study should
inform country dialogue and offer
sustainability options to government.
3.4.2 Expanding mining opportunities:
Malawi needs to put in place a legal
framework for the extractive industries and
become EITI Compliant to ensure greater
transparency and accountability in the use of
resources.
3.4.3 Portfolio performance: The Portfolio
Improvement Plan (Annex 6) will provide
the framework of engagement with
government. The focus will be on results
monitoring and measurement.
3.5 Potential Risks and Mitigation
Measures
3.5.1 Adverse weather: Drought and
floods constitute the biggest risks for the
country’s economy. In 2009, agricultural
production fell by between 18-30% as a
result of local dry spells. The Bank will
reinforce its on-going intervention in
irrigation. Should there be a food crisis the
Bank will engage the government in
cooperation with other development partners
to ensure efficiency in distribution of food
from the National Food Reserve Agency and
facilitate food aid.
3.5.2 An overvalued exchange rate policy:
This is a risk to the country’s capacity to
accumulate foreign reserves and improve
competitiveness. This has an impact on
macroeconomic stability, investment growth
and economic diversification. The Bank will
use the CABS framework to monitor
developments and encourage the GoM to
move towards a more flexible exchange rate
policy.
IV CONCLUSION AND
RECOMMENDATION
4.1 The GoM’s development priorities
outlined in the MGDS are helping the
country make progress towards the MDGs.
While commitment remains high,
infrastructure bottlenecks and a poor
business environment hinders diversification
and limits growth. The Bank’s support as
proposed under the ICSP will help Malawi
consolidate the gains made this far and
catalyze economic diversification for
accelerated poverty reduction. The ICSP
covers the MGDS transition period of 2011
to 2012 to allow better alignment of the next
Bank strategy to the MGDS.II. This will
respond to the GoM’s request that all
development partners align their strategies
to the country’s forthcoming strategy.
4.2 The Board is invited to consider and
approve the ICSP for Malawi, which focuses
on two pillars (i) Improving Infrastructure
and (ii) Accelerating Private Sector
Development.
I
ANNEX 1: MALAWI ICSP RESULTS FRAMEWORK 2011-2012
COUNTRY DEVELOPMENT
GOALS (MGDS)
CONSTRAINTS TO
ACHIEVEMENT OF COUNTRY
DEVELOPMENT GOALS
FINAL OUTCOMES
(Expected by 2012)
FINAL OUTPUTS
(Expected by end of ICSP
period in 2012)
AfDB INTERVENTIONS
(New and On-going)
PILLAR I: IMPROVING INFRASTRUCTURE
AGRICULTURE
Reduce vulnerability to
weather shocks and improve
agricultural productivity
Low irrigation technology
development and adoption
Land under irrigation
increases from 19% in 2010 to
20% in 2012
800 Ha of maize under
irrigation
1,200 Ha of smallholder
sugarcane under irrigation
On-going
Smallholder Crop
Production and Marketing
Project
Agriculture Infrastructure
Services Project (AISP),
designed to support GoM’s
Green Belt Program under
the Agriculture SWAp
TRANSPORT
Reduce transport cost and
increase cross border and
export trade
Poor road transport network
Lack of progress on developing a
multi-modal transport network
Poor transport infrastructure linking
the country to countries in the
region and to the ports
% of road network in good
condition increases from 33%
in 2009 to 34% in 2012
Transport cost as a % of
imports declines from 56% in
2010 to 55.5% in 2012
Transport cost as a % of
exports declines from 30% in
2010 to 29.5% in 2012
45 km of road network
rehabilitated
10 km of the Lilongwe By-
Pass constructed under the
Nacala Road project
Phase.I
Multinational Nacala Road
Project Phase.III approved
to start development of
152km road section in
Malawi and establishment
of two 1 stop border posts
at Chiponde between
Malawi and Mozambique
and at Chipata between
Malawi and Zambia
On-going
Zomba-Blantyre Road
Rehabilitation Project
Multinational Nacala Road
Project Phase I-Lilongwe
By-Pass
Pipeline
Multinational Nacala Road
Project Phase III
The Nacala Project involves
Malawi Zambia and
Mozambique
II
GoM starts implementing
Multimodal transport
network development plan
from the 2010 consultancy
report
WATER
Increase access to safe
drinking water and reduce
incidences of water-borne
diseases
Poor and inadequate water
infrastructure
Lack of capacity and regulatory
authority to effectively manage
water resources
Access to safe drinking water
within 500m distance
increased from 75% in 2010 to
77% in 2012
Access to improved sanitation
increases from 56% in 2010 to
57% in 2012
The Malawi Water and Energy
Regulatory Authority is
established and operational
70 Gravity Fed System
(GFS) and 19,700 Point
Water System (PWS)
rehabilitated. 26 new GFS
and 13,000 new PWS
constructed
Sanitation and hygiene
facilities constructed for
2,600 schools and 1,700
health centers and market
places
On-going
National Water
Development Program II
(NWDP)
PILLAR II: ACCELERATING PRIVATE SECTOR DEVELOPMENT
BUSINESS DEVELOPMENT
Deepen domestic financial
intermediation and increase
access to finance
Lack of access to finance
particularly for SMEs
Lack of database on credit
information
Shortage of foreign exchange
Credit to private sector
increases from 13.5 % of GDP
in 2009 to 14.5% in 2012
Lines of credit extended to
NBS and FMB
The Credit Reference
Bureau is fully operational
The Malawi Kwacha
exchange rate is more
flexible
Pipeline
Lines of Credit to
Opportunity International
Bank of Malawi for credit to
SMEs
GPRSG.III
Improve regulation and reduce
the cost of doing business for
business growth and job
creation
Slow policy and legal reform to
improve the ease of doing business
Lack of business regulatory capacity
Poor value addition capacity for
SMEs
Reduce documents required to
start a business from 10 in
2010 to 8 in 2012
Reduce documents required to
import or export from 10 in
2010 to 8 in 2012
The Merger of MIPA and
MEPC is finalized fully
operational
At least 200 business
enterprises have access to
Local assembly business
advisory services by 2012
On-going
Local Economic
Development
GPRSG.II
Pipeline
AfDB and UNDP Capacity
III
The Competition Commission
is fully operational
SMEs have developed value
addition capacity
Improve access to energy for
businesses
The Kapichira II power
station is operational by
2012
Building Project for
Industry and SME
development (2011) to
complement on-going
World Bank and EU Project
that support improvement to
policy and legal framework
for business development
GPRSG.III
HIGHER EDUCATION FOR SKILLS DEVELOPMENT
Broaden the skills base to
facilitate innovation and
competitiveness
Low access to TEVET and higher
education
Poor infrastructure for higher
education
Enrollment rate for university
education increases from
51/100,000 in 2010 to
52/100,000 in 2012
Ratio of female to male in
tertiary education improves
from 51 in 2007 to 52 in 2012
Enrollment rate for TEVET
increases from 34/100,000 in
2010 to 34.5/100,000 in 2012
Secondary school net
enrollment increases from
13.1% in 2010 to 14% in 2012
Female progression to
secondary school increases
from 75% in 2010 to 76% in
2012
The Higher Education
Science and Technology is
approved to support
university and TEVET
infrastructure development
80 secondary school class
rooms constructed to
supply candidates for
university and TEVET
education.
Pipeline
Support to Higher
Education Science and
Technology Project
GPRSG.II
On-going
Education V project:
Support to Community Day
Secondary School
GPRSG.III
IV
ANNEX 2: MALAWI: SELECTED MACROECONOMIC INDICATORS
Indicators Unit 2000 2004 2005 2006 2007 2008 2009 National Accounts GNI at Current Prices Million US $ 1,749 2,822 2,865 3,156 3,547 4,107 … GNI per Capita US$ 150 220 220 230 250 290 … GDP at Current Prices Million US $ 1,743.5 2,625.1 2,755.0 3,163.7 3,585.9 4,272.6 3 333.1 GDP at 2000 Constant prices Million US $ 1,743.5 1,894.1 1,956.0 2,088.0 2,267.6 2,489.8 2 664.9 Real GDP Growth Rate % 0.8 5.4 3.3 6.8 8.6 9.8 7.0 Real per Capita GDP Growth Rate % -2.4 2.6 0.5 3.8 5.7 6.8 4.1 Gross Domestic Investment % GDP 13.6 18.2 22.7 21.8 25.3 24.0 20.9 Public Investment % GDP 10.0 9.1 7.2 7.7 14.3 8.5 8.0 Private Investment % GDP 3.5 9.1 15.5 14.2 11.1 15.5 12.9 Gross National Savings % GDP 8.3 10.9 10.9 14.7 23.7 16.3 14.7 Prices and Money Inflation (CPI) % 29.6 11.4 15.5 13.9 7.9 8.7 8.5
Exchange Rate (Annual Average) local
currency/US$ 59.5 108.9 118.4 136.0 140.0 140.5 141.7
Monetary Growth (M2) % 45.5 29.7 16.2 16.4 36.6 62.6 23.8 Money and Quasi Money as % of GDP % 17.8 16.2 16.6 14.6 17.1 23.3 36.6 Government Finance Total Revenue and Grants % GDP 24.1 34.7 37.5 31.2 31.7 30.1 29.8 Total Expenditure and Net Lending % GDP 29.7 42.5 42.9 31.2 33.0 32.8 35.2 Overall Deficit (-) / Surplus (+) % GDP -5.6 -7.8 -5.4 0.0 -1.3 -2.7 -5.4 External Sector Exports Volume Growth (Goods) % -6.6 1.8 0.6 3.7 19.4 -7.5 26.3 Imports Volume Growth (Goods) % -21.3 13.9 21.7 1.6 -5.0 -1.1 5.5 Terms of Trade Growth % -9.5 8.7 -0.7 -2.5 -3.0 21.7 -13.8 Current Account Balance Million US $ -91.5 -455.9 -664.4 -203.0 -91.2 -289.3 -269.6 Current Account Balance % GDP -5.3 -17.4 -24.1 -6.4 -2.5 -6.8 -8.1
External Reserves months of imports 3.4 1.0 1.1 0.8 1.1 1.0 0.8 Debt and Financial Flows Debt Service % exports 19.9 19.0 18.5 14.3 2.0 1.3 2.0 External Debt % GDP 153.4 112.6 107.8 14.3 14.4 16.0 26.1 Net Total Financial Flows Million US $ 431.1 509.2 572.1 706.3 724.3 923.6 … Net Official Development Assistance Million US $ 446.2 503.5 573.3 698.2 742.1 912.7 … Net Foreign Direct Investment Million US $ 39.6 107.7 52.3 72.2 92.1 170 60.4
Source : AfDB Statistics Department; December 2010
V
ANNEX 3 : MALAWI: COMPARATIVE SOCIO-ECONOMIC INDICATORS
Year Malawi Africa Develo-
ping Countries
Develo- ped
Countries
Basic Indicators
Area ( '000 Km²) 118 30 323 80 976 54 658
Total Population (millions) 2010 15.7 1,031.5 5,629 1,069
Urban Population (% of Total) 2010 19.8 40.0 44.8 77.7
Population Density (per Km²) 2010 132.4 3.4 66.6 23.1
GNI per Capita (US $) 2009 280 1 550 2 780 39 688
Labor Force Participation - Total (%) 2010 41.7 39.5 45.6 54.6
Labor Force Participation - Female (%) 2010 49.8 41.4 39.8 43.3
Gender -Related Development Index Value 2007 0.490 0.433 0.694 0.911
Human Dev Index (Rank among 169 countries) 2010 153 n.a n.a n.a.
Popl. Living Below $ 1 a Day (% of Population) 2004 73.9 42.3 25.0 …
Demographic Indicators
Population Growth Rate - Total (%) 2010 2.8 2.3 1.3 0.7
Population Growth Rate - Urban (%) 2010 5.4 3.3 2.4 1.0
Population < 15 years (%) 2010 45.9 40.3 29.2 17.7
Population >= 65 years (%) 2010 3.5 3.8 6.0 15.3
Dependency Ratio (%) 2010 96.2 77.6 52.8 49,O
Sex Ratio (per 100 female) 2010 98.9 99.5 93.5 94.8
Female Pop 15-49 years (% of total population) 2010 22.5 24.4 53.3 47.2
Life Expectancy at Birth - Total (years) 2010 54.6 56.0 66.9 79.8
Life Expectancy at Birth - Female (years) 2010 52.8 57.1 68.9 82.7
Crude Birth Rate (per 1,000) 2010 39.2 34.2 21.5 12.0
Crude Death Rate (per 1,000) 2010 11.4 12.6 8.2 8.3
Infant Mortality Rate (per 1,000) 2010 78.4 78.6 49.9 5.8
Child Mortality Rate (per 1,000) 2010 110.8 127.2 51.4 6.3
Total Fertility Rate (per woman) 2010 5.4 4.4 2.7 1.8
Maternal Mortality Rate (per 100,000) 2008 510.0 530.2 440.0 10.0
Women Using Contraception (%) 2006 41.7 … 61.0 75.0
Health & Nutrition Indicators
Physicians (per 100,000 people) 2004 2.1 42.9 78.0 287.0
Nurses (per 100,000 people)* 2004 56.3 116.6 98.0 782.0
Births attended by Trained Health Personl (%) 2006 53.6 52.7 63.4 99.3
Access to Safe Water (% of Population) 2008 80.0 64.9 84.0 99.6
Access to Health Services (% of Population) 2005 … 65.4 80.0 100.0
Access to Sanitation (% of Population) 2008 56.0 41.0 54.6 99.8
%. of Adults (aged 15-49) Living with HIV/AIDS 2007 11.9 4.6 1.3 0.3
Incidence of Tuberculosis (per 100,000) 2007 346.0 315.2 161.9 14.1
Child Immunization Against Tuberculosis (%) 2009 95.0 81.8 89.0 99.0
Child Immunization Against Measles (%) 2009 92.0 81.0 81.7 92.6
Underweight Children (% of under 5 years) 2004 22.0 30.9 27.0 0.1
Daily Calorie Supply per Capita 2007 2 172 2 462 2 675 3 285
Public Expenditure on Health (as % of GDP) 2006 8.9 2.4 4.0 6.9
Education Indicators
Gross Enrolment Ratio (%)
Primary School - Total 2009 119.3 102.8 106.8 101.5
Primary School - Female 2009 121.1 99.0 104.6 101.2
Secondary School - Total 2009 29.5 35.0 62.3 100.3
Secondary School - Female 2009 27.6 30.6 60.7 100.0
Primary School Female Teaching Staff (% of Total) 2005 … 38.1 … …
Adult literacy Rate - Total (%) 2008 72.8 64.8 81.0 …
Adult literacy Rate - Female (%) 2008 65.8 55.9 75.6 …
Percentage of GDP Spent on Education 2003 4.2 4.6 … 5.4
Environmental Indicators
Land Use (Arable Land as % of Total Land Area) 2008 37.2 7.8 9.9 11.6
Annual Rate of Deforestation (%) 2005 … 0.7 0.4 -0.2
Annual Rate of Reforestation (%) 2005 … 10.9 … …
Per Capita CO2 Emissions (metric tons) 2008 0.1 1.2 1.9 12.3
Source: AfDB Statistics Department database; Workd Bank Development Indicators; UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP;
Country Reports. Note : n.a. : Not Applicable ; … : Data Not Available. December, 2010
VI
ANNEX 4: MALAWI PROGRESS IN MDGs INDICATORS
1990 1995 2000 2005 2008
Goal 1: Eradicate extreme poverty and hunger
Employment to population ratio, 15+, total (%) 72 71 72 72 72
Employment to population ratio, ages 15-24, total (%) 48 46 48 49 49
GDP per person employed (constant 1990 PPP $) 1,158 1,213 1,317 1,314 1,546
Income share held by lowest 20% .. .. 5 7 ..
Malnutrition prevalence, weight for age (% of children under 5) 24 .. 22 18 16
Poverty gap at $1.25 a day (PPP) (%) .. .. 46 32 ..
Poverty headcount ratio at $1.25 a day (PPP) (% of population) .. .. 83 74 ..
Vulnerable employment, total (% of total employment) .. .. .. .. ..
Goal 2: Achieve universal primary education
Literacy rate, youth female (% of females ages 15-24) .. .. 71 .. 85
Literacy rate, youth male (% of males ages 15-24) .. .. 82 .. 87
Persistence to last grade of primary, total (% of cohort) .. .. 39 36 36
Primary completion rate, total (% of relevant age group) 28 52 65 55 54
Total enrollment, primary (% net) .. .. 99 91 91
Goal 3: Promote gender equality and empower women
Proportion of seats held by women in national parliaments (%) 10 6 8 14 13
Ratio of female to male primary enrollment (%) 87 91 96 103 103
Ratio of female to male secondary enrollment (%) 57 68 75 81 85
Ratio of female to male tertiary enrollment (%) 34 40 38 55 51
Share of women employed in the nonagricultural sector (% of total nonagricultural employment) 10.5 11.3 .. .. ..
Goal 4: Reduce child mortality
Immunization, measles (% of children ages 12-23 months) 81 90 73 82 88
Mortality rate, infant (per 1,000 live births) 129 116 99 82 71
Mortality rate, under-5 (per 1,000) 218 195 164 134 115
Goal 5: Improve maternal health
Adolescent fertility rate (births per 1,000 women ages 15-19) .. .. 161 147 133
Births attended by skilled health staff (% of total) 55 .. 56 54 54
Contraceptive prevalence (% of women ages 15-49) 13 22 31 41 41
Maternal mortality ratio (modeled estimate, per 100,000 live births) 910 830 770 620 510
Pregnant women receiving prenatal care (%) 90 .. 94 92 92
Unmet need for contraception (% of married women ages 15-49) 36 .. 30 28 ..
Goal 6: Combat HIV/AIDS, malaria, and other diseases
Children with fever receiving antimalarial drugs (% of children under age 5 with fever) .. .. 27 25 25
Condom use, population ages 15-24, female (% of females ages 15-24) .. .. 9 9 ..
Condom use, population ages 15-24, male (% of males ages 15-24) .. .. 28 32 ..
Incidence of tuberculosis (per 100,000 people) 260 390 420 390 320
Prevalence of HIV, female (% ages 15-24) .. .. .. 8.4 8.4
Prevalence of HIV, male (% ages 15-24) .. .. .. 2.4 2.4
Prevalence of HIV, total (% of population ages 15-49) 2.1 12.1 13.5 12.3 11.9
VII
Tuberculosis case detection rate (all forms) 51 48 47 48 50
Goal 7: Ensure environmental sustainability
CO2 emissions (kg per PPP $ of GDP) 0 0 0 0 0
CO2 emissions (metric tons per capita) 0 0 0 0 0
Forest area (% of land area) 41.4 39.7 37.9 36.2 35.5
Improved sanitation facilities (% of population with access) 42 47 50 54 56
Improved water source (% of population with access) 40 51 63 74 80
Marine protected areas (% of total surface area) .. .. .. .. 0
Terrestrial protected areas (% of total surface area) .. .. .. .. 16
Goal 8: Develop a global partnership for development
Net ODA received per capita (current US$) 53 43 38 42 61
Debt service (PPG and IMF only, % of exports, excluding workers' remittances) 28 24 25 18 1
Internet users (per 100 people) 0.0 0.0 0.1 0.4 2.1
Mobile cellular subscriptions (per 100 people) 0 0 0 3 12
Telephone lines (per 100 people) 0 0 0 1 1
Other
Fertility rate, total (births per woman) 7 7 6 6 6
GNI per capita, Atlas method (current US$) 180 160 150 210 260
GNI, Atlas method (current US$) (billions) 1.7 1.6 1.7 2.9 3.9
Gross capital formation (% of GDP) 23.0 17.4 13.6 23.4 26.5
Life expectancy at birth, total (years) 49 52 51 51 53
Literacy rate, adult total (% of people ages 15 and above) .. .. 64 .. 73
Population, total (billions) 0.0 0.0 0.0 0.0 0.0
Trade (% of GDP) 57.2 78.5 60.9 63.7 48.1
Source: World Development Indicators (2010)
VIII
ANNEX 5: 2010 CPPR: COUNTRY PORTFOLIO IMPROVEMENT PLAN
Main Issues Actions Required Responsible Timeframe
Quality at Entry
Stakeholders
participation
Ensure government teams include the right skills mix during project preparation,
appraisal, and negotiation
GoM (MoF) Ongoing
Involve the Ministry of Development Planning and Cooperation (MoDPC) in
project negotiation
GoM (MoF/MoDP&C/Sector
Ministries)
Ongoing
Ensure the Government team is given sufficient time to review draft project
appraisal reports before negotiation (at least two weeks)
Bank (MWFO) Ongoing
Project preparation
Ensure Bank’s project identification, preparation, appraisal and negotiation teams
have adequate skills mix
Bank (MWFO and Sector
Departments)
Ongoing
Develop a three year rolling project pipeline Bank (MWFO) Ongoing
Ensure executing agencies/line ministries meet projects’ effectiveness conditions
timely
GoM (MoF) Ongoing
Projects designs are preceded by detailed feasibility studies Bank (MWFO/Sector
Departments) /GoM
(MoF/Sector Ministries)
Ongoing
Design of future projects should target large number of beneficiaries within
narrow geographical areas for cost effectiveness and visible impacts
Bank (MWFO/Sector
Departments) /GoM
(MoF/Sector Ministries)
Ongoing
Ensure lessons learned from closed projects are incorporated in new projects and
put in place a verification mechanism
Bank (MWFO/Sector
Departments)/ MoF/EAs
For each new
operations
Delays in
undertaking mid-
term reviews
Conduct mid-term review at mid term of a project and review constraints Bank (MWFO and Sector
Departments)
Ongoing
Fiduciary Management
Procurement
Contract
management
Enforce conditions of contracts GoM (ODPP/EAs) Ongoing
Firms which constantly perform inadequately should be blacklisted GoM (ODPP/EAs) Ongoing
Establish a mechanism to restrict the number of contracts a contractor is given in
at a time
GoM (ODPP) Ongoing
Introduce more regular procurement audits Bank Once a year
Procurement
capacity constraints
Continue to organizing regular training courses for procurement staff of project on
Bank’s procurement rules and procedures as well as contract management to all
relevant staff and contractors
Bank (MWFO)/GoM (EAs) Ongoing
Incorporation of
appropriate
procurement
methods
Projects to consider appropriate and realistic procurement methods in accordance
the needs of each project
Bank (MWFO/Sector
Departments)/ EAs
Ongoing
Delays in issuance
of no-objections
MWFO to have authority to give no objection based on threshold to be reflected in
the Delegation of Authority Matrix
Bank (MWFO) Ongoing
IX
More use of post evaluation method of procurement especially for procurement
less than UA100,000
Bank (ORPF-Operations
Procurement and Fiduciary
Department)
Ongoing
Financial Management
FM capacity
constraints
Government to work out some incentive mechanism to recruit and retain qualified
financial management specialists in EAs
GoM June 2011
Continue to conduct disbursement training on the Bank’s disbursement rules and
procedures in collaboration with EADI
Bank (MWFO) Ongoing
MWFO to recruit Financial Management Specialist Bank (MWFO) June 2011
Audits
Delays of audit
reports
All audit contracts to include penalty clauses on late delivery of audit reports by
private auditors
GoM (EAs) Ongoing
Procure audit firms timely on multi year contract GoM (EAs)
Ongoing
Enforce/invoke audit requirements as agreed with Government in the Loan/ Grant
Agreements
Bank (MWFO) Ongoing
Submit all the outstanding audit reports GoM (EAs) December 2010
Monitoring , Evaluation and Reporting
M&E framework
and reporting
Ensure baseline and annual targets data are established within the first year of a
project where this is not available
Bank (MWFO and Sector
Departments) and GoM (EAs)
Ongoing
Improve the formulation of projects’ results framework to better the quality of
indicators, baseline and targets
Bank (MWFO and Sector
Departments) and GoM (EAs)
Ongoing
Reporting should be based on results framework including on gender
disaggregated data
GoM (EAs) Quarterly
Continue conducting regular Results Based M&E Workshop Bank (MWFO) Ongoing
Include relevant CSIs in the project results framework (for projects approved after
1 January 2008)
Bank (MWFO and Sector
Departments)/ GoM (EAs)
Before the end of
2010
Supervision missions’ checklist should include environmental and social
management activities and projects’ quarterly reports should report on progress
Bank (MWFO and Sector
Departments)/ GoM (EAs)
Ongoing
Ensure Bank’s supervision missions have adequate skills mix and are conducted
timely.
Bank (MWFO) Ongoing
Implementation Capacity
Weak
implementation
capacity
Continue to conduct regular meeting between the Bank and EAs to follow up on
project implementation issues
Bank (MWFO)/GoM (MOF,
Sector Ministries and EAs)
Quarterly
Ensure Project Steering Committees are functional for all projects GoM (EAs/MoF) Ongoing
Undertake the planned phasing out of all PIUs by the end of 2011 in phased
manner on a case by case basis.
GoM Ongoing
X
ANNEX 6: COMPARATIVE KEY PERFORMANCE INDICATORS
Performance Indicators Evolution
Internal
Comparison
External
Comparison
Malawi
2006
Malawi
2008
Malawi
2010
Malawi
2010
2009
APPR
Malawi
2010
WB
Malawi
2010
Implementation &
Impact
Age (years) 3.2 5.7 3.2 3.2 3.4 3.2 3.5
Disbursement rate (%) 30.9 39.2 43.5 43.5 n/a 43.5 21
Disbursement Ratio (%) - 22.5 18.6 18.6 28.0 18.6 n/a
Average portfolio size (UA million) 9.1 10.9 16 16 24.8 16 26.5
Overall Portfolio Rating (Rating 0-3) 2.0 2.2 2.3 2.3 n/a 2.3 n/a
Commitment-At-Risk-CAR (%) - 39 4 4 37 4 49
Project-At-Risk-PAR (%) 47.0 50 9 9 37 9 22
Problem Projects - PP (% of on-going projects) 13.0 0 9 9 6 9 11
Ageing projects more than 8 years (%) - 36 9 9 13 9 0
Investment Operations < UA 10 m (% of projects) - 36 9 9 n/a 9 0
Regional Operations (% of on-going projects) - 0 9 9 15 9 18
Harmonization &
Alignment
Use of parallel PIUs (#) - 8 3 3 n/a 3 6
Use of Program Based Approaches (#) - 2 5 5 n/a 5 2
Coordinated analytical work (#) - 4 1 1 n/a 1 2
No of co-financed projects (#) 2 5 5 n/a 5 4
XI
ANNEX 7: MAP OF MALAWI
